ACTEC Trust & Estate Talk

Episode: Estate & Gift Tax and Charitable Contributions Under the OBBBA

Date: September 2, 2025
Host: ACTEC Fellow Natalie Perry
Panelists: Beth Shapiro Kaufman (Washington, D.C.), Stevie Castile (Las Vegas, Nevada)

Overview

This episode explores the significant trust and estate impacts of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. Expert ACTEC Fellows Beth Shapiro Kaufman and Stevie Castile break down changes to estate, gift, and charitable contribution tax planning caused by the OBBBA—nicknamed "OB3." Their discussion includes legislative background, technical nuances, and practical planning guidance for wealth professionals and their clients.

Key Discussion Points & Insights

1. Legislative Background and Process of the OBBBA

Speaker: Beth Shapiro Kaufman
Timestamp: 01:44–13:11

OBBBA’s Significance: The act is the most major overhaul of federal tax law since 2017, affecting exemptions, rates, and deductions.
Estate & Gift Tax Exemption:
- No more worry about the "sunset" of the doubled exemption (from 2018).
- New exemption: $15 million per person, effective Jan 1, 2026, indexed for inflation from 2027 onward, and labeled as “permanent” (until Congress changes it).
Budget Reconciliation Pathway:
- Filibuster Avoidance: Opted for budget reconciliation (avoiding the 60-vote filibuster threshold in the Senate).
- Byrd Rule: Explained how certain elements, even labels like the bill's name, were struck for not affecting revenues or outlays.
  - “One of the provisions that was stricken under the Byrd rule was the short name of the bill. …and so someone challenged it, and the parliamentarian struck it. So, officially, this bill doesn't have a name, which is why a bunch of us have decided to call it OB3.” (09:28 – Beth)
- Parliamentarian’s Role: Elizabeth McDonough as key, non-political arbiter.
Budgeting & Baseline “Scoring”:
- Used a "current policy" baseline including prior temporary tax cuts (TCJA provisions) to make extensions appear costless.
- Analogy: “When I went to the grocery store last week, I bought milk and ice cream…This week… the cashier says, ‘Oh, you don’t have to pay for those because you bought them last week.’ That’s what this is like.” (10:31 – Beth)
- “If you use current policy as your baseline, then you could, for example, if you were Congress, pass a law and put it in effect for one year and it’s very expensive, but it’s only one year. Then the following year while it’s in effect, Congress could come back and say, we’re going to make that law permanent and claim that because current policy includes that one year law, they don't have to offset the revenue loss from the next year forward into the future.” (11:07 – Beth)
Final Passage:
- House passed by one vote (215-214); Senate passed 51-50, with Vice President Vance as tie-breaker.
- No conference committee (“a little bit of arm twisting”) to meet President Trump’s July 4 deadline.
- Final bill: $4.5 trillion in tax cuts over 10 years, $1.7 trillion in spending cuts.
Estate/Gift Tax Planning Note:
- The increase to $15M/person exemption is the headline for planners; vigilance still needed.
- “Permanent means it’s the law until Congress changes the law.” (12:46 – Beth)

2. Charitable Contributions and Income Tax Deductions under OB3

Speaker: Stevie Castile
Timestamp: 13:43–18:50

Suspension of Miscellaneous Deductions Made Permanent:
- Affects estates/trusts—non-itemized deductions now subject to a 2/37 haircut.
- Impact on Charitable Remainder Trusts and Estates: Section 642 charitable deduction is now cut, so trusts/estates payable to charity will still owe income tax.
  - Example: A trust with $370,000 income all payable to charity suffers a $20,000 deduction disallowance due to the haircut, reducing charitable funds, increasing tax, and creating a “circular algebraic computation.” (15:04 – Stevie)
Changes for Individual Taxpayers (2026 onward):
- For Itemizers:
  - Charitable deductions allowed only above 0.5% of AGI.
    - “If Jill’s AGI is $1 million and she gives $100,000 to charity, the first $5,000 will not be deductible.” (16:11 – Stevie)
  - Deduction value capped at 35% of donation—even for those in higher tax brackets.
    - “High income filers donating $1,000 would receive a $350 tax benefit instead of the current $370 tax benefit.” (16:28 – Stevie)
  - Good news: The 60% AGI limit for cash contributions to public charities is made permanent.
- For Non-Itemizers:
  - Now permitted to deduct up to $1,000 (individual) or $2,000 (joint) for public charity cash gifts (not DAFs/supporting orgs), starting 2026.
  - Urged to “bunch” giving into a single year (including funding a DAF) to maximize deduction.
- Planning Insights:
  - For itemizers: Complete large gifts or fund DAFs before end of 2025 to avoid new floor/cap (17:38 – Stevie).
  - Make substantial gifts in low-AGI years to minimize impact of the new 0.5% floor after 2025.
  - For non-itemizers: Delay gifts until 2026; bunch giving to maximize deduction under new law.
Excise Tax Changes:
- New excise taxes of 1.4% to 8% on endowment/investment earnings for colleges/universities with over $2M endowment/student.
  - Applies to 56 institutions now, more expected.
  - Institutions with <3,000 tuition-paying students are exempt.
  - Note: Expected hike of private foundation excise tax (to 10%) did not pass.
    - “There was a proposal to increase the section 4940 excise tax on private foundations… but this proposal did not make it into the final bill.” (18:30 – Stevie)

Memorable Quotes

On legislative process:

“It’s a little more complicated than Schoolhouse Rock made it out to be.”
— Beth Shapiro Kaufman [01:52]
On congressional budgeting tricks:

“That’s what this is like. …You don’t have to pay for those because you bought them last week.”
— Beth Shapiro Kaufman [10:38]
On complexity for charitable trusts:

“…You end up in a circular algebraic computation that makes the result even worse.”
— Stevie Castile [15:41]

Important Timestamps

00:43: Episode introduction and context by Natalie Perry
01:44: Beth Shapiro Kaufman’s breakdown of legislative background and estate/gift highlights
09:28: Byrd Rule and bill “name” anecdote
10:31: "Milk and ice cream at the grocery store" analogy for current policy baseline
13:11: Transition to charitable deduction topic, introduction of Stevie Castile
13:43: Stevie Castile on charitable deduction and excise tax changes
15:04: Section 642 “haircut” example for trusts/estates
16:11: Example of AGI floor for itemizers
17:38: Planning recommendations for maximizing charitable deductions
18:30: Excise tax changes for endowments; failed proposal for foundation excise tax hike
18:50: Outro and teaser for next episode on opportunity zones

Tone and Language

The panelists keep their explanations clear, sometimes wryly humorous, and deeply practical, “translating” complex legislative mechanics into plain English for practitioners:

Beth uses vivid analogies and asides to demystify legislative gamesmanship.
Stevie points out not just the technical changes, but their often counterintuitive, practical impacts - especially for planned giving.

Summary for Practitioners

This episode is essential listening for estate planners and wealth advisors needing to adapt quickly to the new regime:

The $15M estate/gift exemption is here to stay (for now), bringing relief but demanding ongoing vigilance.
Rules for charitable deductions are tighter, with new floors, caps, and excise taxes on institutions—affecting trust planning and individual giving.
Advisors should act swiftly (before the end of 2025) to front-load large charitable gifts or DAF funding for clients.

For further resources or episode follow-ups, visit actec.org.

Transcript

A (0:05)

Estate and gift tax and charitable contributions under the One Big Beautiful Bill act that's the subject of today's ACTECH Trust and Estate Talk.

B (0:18)

Welcome to ACTEC Trust and Estate Talk from the American College of Trust and Estate Council, a professional society of peer elected trust and estate lawyers in the United States and around the globe. The this series offers professionals best practice advice, insights and commentary on subjects that affect our profession and clients. And now, our ACTEC Fellow host with today's topic.

A (0:43)

This is ACTECH Fellow Natalie Perry of Chicago, Illinois. Signed into law on July 4, 2025, the one big Beautiful Bill act marks the most significant overhaul of federal tax legislation since 2017, impacting taxes, credits and deductions across the board. In a recent ACTECH Ali CLE webinar, a panel of expert ACTEC Fellows offered valuable insights for estate planners navigating this complex new landscape. ACTEC Trust and Estate Talk is pleased to present highlights from that discussion in this special series of podcasts. In this podcast, we'll hear an overview about the bill from ACT tech fellow Beth Shapiro Kaufman of Washington, D.C. followed by impacts to Charitable Contribution Deductions by Stevie Castile of Las Vegas, Nevada. Welcome, Beth.

C (1:44)

Estate planners have spent the last seven years worrying about and planning for a potential sunset of the doubled estate gift and generation skipping tax exemption that's been in effect since 2018. The new tax bill signed into law on July 4, 2025, eliminates that issue. Instead, the exemption will rise to $15 million per person, effective January 1, 2026. Today, I'll talk about some of the nuances in this legislative process and how we got here. It's a little more complicated than Schoolhouse Rock made it out to be. The first question with this bill is whether it was going to be a regular tax bill or whether it was going to be a budget reconciliation act. That issue is important because it changes the procedure, particularly as a bill goes through the Senate. We were fortunately in a situation where a Budget reconciliation act was possible. Now there's only one Budget Reconciliation act per fiscal year, and the fiscal year runs from October 1st until September 30th. But Congress hadn't passed a Budget Reconciliation act for the fiscal year ending September 30, 2025. So we had the possibility of this being the Budget Reconciliation act for fiscal year 2025. Otherwise we would have just been stuck with a regular bill. The reason it makes a difference is because on the Senate side, a regular bill is subject to filibuster. And if a filibuster gets started, it takes a 60 vote. Vote in order to overcome a filibuster. However, budget reconciliation acts are not subject to filibuster. They can pass with a simple majority. The trade off is that budget reconciliation acts are subject to something called the Byrd rule. And this has nothing to do with beasts with flapping wings. This is Senator Robert Byrd, who was a longtime Senate member from West Virginia. So the way the Byrd rule works is that any senator can call a point of order as to an extraneous matter in the bill. An extraneous matter for this purpose is one that has no impact on outlays or revenues, that increases revenue for a fiscal year beyond the budget window covered by the reconciliation measure, or that recommends changes in Social Security. So if a Senator raises a point of order about some item in a reconciliation bill on one of these bases, then the question goes to the parliamentarian. And the parliamentarian in the Senate is a particular individual. It's currently Elizabeth McDonough. She's been the parliamentarian since 2012, and she's been in the parliamentarian's office since 1999. So this is not a political appointment. This is just a person who's the arbiter of whether the rules are being followed. If she says that something is actually an extraneous matter, then either it gets stricken from the bill or that provision has to get modified so that it's not an extraneous matter, or the point of order can be overcome by. By a 60 vote majority. But margins in the Senate right now are too thin to count on 60 votes for anything. What we saw as the Senate considered this bill is that a number of provisions were the subject of a point of order. The parliamentarian ruled on each of them as she is supposed to, and that process went surprisingly well under the circumstances. Just kind of as an aside, one of the provisions that was stricken under the Byrd rule was the short name of the bill. So there had been a line in the bill that said, this bill shall be known as the one big beautiful Bill Act. And that, of course, has no impact on outlays or revenues. And so someone challenged it, and the parliamentarian struck it. So, officially, this bill doesn't have a name, which is why a bunch of us have decided to call it OB3. All right, so once the decision was made to have this be a budget reconciliation bill, then we're following the rules that apply for budget reconciliation bills. And the first thing that you need is a budget framework. Once you have a budget framework, then you can go on to see what fits in that budget. So A budget framework is an agreement as to how much money you're going to spend. In other words, how much revenue loss are you going to put up with from this bill? And after a fair amount of back and forth, the House and the Senate decided that they were going to spend $4.5 trillion. That's trillion with a T, $4.5 trillion over 10 years. 10 years is the budget window. And they were going to require $2 trillion in spending cuts over that same period. Now, Simply extending the TCJA provisions was estimated to cost $4.6 trillion. And then on top of that, there were a bunch of other campaign promises that had been made, like no tax on tips, no tax on overtime, no tax on Social Security. So clearly, it was time to get creative. All right, we have to talk about something that we call scoring. Scoring is a determination of how much revenue would be lost during the revenue window. And the window here is 10 years. And you measure the cost of legislation by comparing how much revenue is going to be coming in if you pass the legislation with how much money would come in if you didn't pass the legislation. And at least that's the way it's always been done. And we call that measure of how much revenue would come in without the legislation the baseline. So we compare revenues under the bill with the baseline. Well, this year in Congress, they said, well, the baseline could be current law, which is what the law would be if the bill didn't pass. Or it could be current policy. Current policy included the TCGA provisions, including, for example, the doubled estate and gift and GST exemption. If you treat the TCJA provisions as being in the baseline, then when you extend the TCJA provisions and make them permanent, they cost nothing. Okay, so this is the way I like to analogize that. Say that we're going to the grocery store. And when I went to the grocery store last week, I bought milk and ice cream, among other items. And this week, I again have milk and ice cream in my cart, and I go through the checkout and I put all my items on the conveyor belt. And when the cashier rings up the milk and ice cream, she says, oh, you don't have to pay for those because you bought them last week. That's what this is like. Okay, we don't have to pay for the TCGA provisions because we enacted them in 2018, but they were supposed to expire at the end of 2025. Well, that's okay because it's current policy. So that's how Congress got around paying for the TCJA provisions. And let me just make it clear. When Congress passed the TCJA provisions in 2018, they didn't make them temporary because they didn't really love them. They made them temporary because they were trying to adhere to the budget rules and they didn't have the revenues to offset making them permanent. If you use current policy as your baseline, then you could, for example, if you were Congress, pass a law and put it in effect for one year and it's very expensive, but it's only one year. Then the following year while it's in effect, Congress could come back and say, we're going to make that law permanent and claim that because current policy includes that one year law, they don't have to offset the revenue loss from the next year forward into the future. You can draw your own conclusions about what that does to the federal budget. But as you know, The House passed OB3 in late May of 2025. It is a budget reconciliation bill. It does use current policy as its baseline, and therefore they were able to include a lot of new tax cuts under the budget framework because they didn't have to include the cost of extending the TCJA provisions. The bill passed 215 to 214, and then the action turned to the Senate side. After making various changes to the House bill and some touch and go meetings with fiscal conservatives who were concerned about the impact on revenues and deficits, The Senate voted 51 to 50 to pass the bill on July 1, 2025, with Vice President Vance casting the deciding vote. Now, normally the next step would be to create a conference committee and there would be a conference between Senators and members of the House. They would negotiate between the provisions in the two bills, come up with a compromise, and then it would get voted on again in the Senate and the House. But Donald Trump had asked for this bill to be on his desk for July 4th. So they didn't have very much time and they reached an agreement with a little bit of arm twisting. I think that the House would just vote on the Senate bill as it was. And so they did. The bill passed the House that gave us the exact same bill passed by both chambers. And then it went to the President and he did sign it on July 4th. The final bill cuts taxes by 4.5 trillion over a decade, using a current policy baseline and cuts spending by $1.7 trillion. So just a quick overview of the estate and gift provisions in this bill. As I said when I started, there is really just one provision. It's an increase in the exemption to $15 million per person effective January 1, 2026. That exemption level will then be indexed going Forward starting in 2027. And it's permanent. As we say now, permanent means it's the law until Congress changes the law. So we don't any longer have an expiration date looming. But it's still possible that at some point some other Congress composed of different people will come back and make changes. So we still need to be vigilant in planning. There are a lot of other provisions in this tax bill. We're going to have a series of podcasts on these subjects and other ACTEC fellows will be speaking and summarizing the provisions on the non estate, gift and generation skipping tax provisions, many of which are very relevant to our practices and our clients.